The end of the supermarket sweep?

Posted: 10/08/2012

1 July 2012 was a key date for businesses seeking to challenge the dominance of the seven major supermarket chains where supermarkets have tied up land through restrictive covenants or exclusivity agreements.

It was back in April 2008 that the Competition Commission’s report, 'The supply of groceries in the UK market investigation', concluded that certain large grocery retailers were using 'land banking' to limit competition and protect stores in areas where competition was sparse. This was achieved by buying up land and placing restrictive covenants on the title which would block other sites from being developed as supermarkets. Competing stores were prevented from developing in certain areas and (where there was very little competition) this was viewed by the Competition Commission as anti-competitive behaviour.

The Groceries Market Investigation (Controlled Land) Order (CLO) followed in April 2010. Under this Order, the big seven supermarkets (Asda, Co-Op, Marks & Spencer, Morrisons, Sainsbury’s, Tesco and Waitrose) were required:

• to release existing restrictive covenants that have a significant anti-competitive impact;
• not to enter into restrictive covenants that may restrict competition in the grocery market;
• not to enforce existing exclusivity agreements identified as having a significant anti-competitive impact or enter into new exclusivity agreements.  

The next step in the battle against the anti-competitive practices of the big seven is the ability, from 1 July 2012, for businesses to apply to the Office of Fair Trading (OFT) for land use restrictive covenants and exclusivity agreements which stifle competition to be examined by the OFT and for the test set out in Schedule 4 to the CLO to be applied.

The new process involves the OFT looking at the total number of relevant grocery stores within a 10-minute drive time from the large grocery retailer benefitting from a restrictive covenant or exclusivity agreement. Where the number is three or fewer, the OFT will examine whether the grocery retailer in question has a market share of greater than 60% in the 10-minute drive time area surrounding it.

If the market share is greater than 60%, the large grocery retailer will have failed the test and will be required to use their best endeavours to arrange for the release of the restrictive covenant or exclusivity arrangement.

It is important to note, however, that the OFT states in its guide on the procedure for dealing with requests to carry out the test that its objective is 'to advise requesters of their rights rather than to have the OFT lead in procuring the removal of restrictions' but they do add that they 'might seek to get involved where difficulties arise'. It will be interesting to see how often the OFT is prepared to get involved. 

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